Saurabh Rustagi 10P049 Vedanta Present a Ion

8/6/2019 Saurabh Rustagi 10P049 Vedanta Present a Ion

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TOANALYZE EXISTING, LOSTANDPOTENTIAL CUSTOMERSOF SIILAND

DEVELOPASTRATEGYTOINCREASEITS

COPPERSALE

By

Saurabh Rustagi

10P049

Sterlite Industries (I) Ltd.

Vedanta Resources

VEDANTAGROUP

o Sterlite Industries

STERLITE INDUSTRIES (I) LTD.

'Sterlite' Copper cathodes are

produced using state-of-the-art

"ISA electro-refining"technology.

Applications

Continuous Cast Copper Rods

Copper Wire Bars, Bus bars,

Billets, Ingots, Moulds and

Other semis

Copper based alloys and

downstream products

Copper tubes, strips and foils

SIIL continuous cast Copper rods

are produced using the Propezi

technology.

Applications

Jelly Filled Telephone Cables

Magnetic wires & Winding wires

Power Cables

Automobile Wire Harness

Communication Cables

House wiring

Conductors (Rounds and Flats)

Transformer

Copper CathodesContinuous Cast Copper

Rods

o Sterlite Plants and Capacity

STERLITE INDUSTRIES PLANTS


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COPPER INDUSTRY

0100200300400500600700800

2001 2002 2003 2004 2005 2006 2007 2008 2009

In000MT

Copper in India

Product ion Consumption

InstalledCapacity

InstalledCapacity

InstalledCapacity

Copper produced

Copper produced Copper produced

0

100000

200000

300000

400000500000

600000

HCL SIIL Birla Copper

InMetricTonnes

India Copper Refineries

Production always morethan consumption

Few players in themarket

High barriers to entryor exit

Oligopolistic Market RATIONALEFOR RESEARCH

Every company envisions to be the biggest in theworld

To do so, it plans to increase its sales using differentmethods and approaches

In this research we have considered 4 methods that

can be used to increase copper sales

METHODSTO INCREASE SALES

IncreaseSales

AvoidCustomerLoss

Captureimport

Market

Searchpotential

buyers

Grow withcustomers

LOST CUSTOMER ANALYSISEven small customers affect our bottom line

Loss of a single small customer might not affect much, but manysuch customers create an impact

It is important to continuously sell to each and every customer,be it small or large

Let us look at the customers lost, and the factors responsible


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RATIONALEFOR RESEARCH

As the number of buyers in the market is notgrowing, loss of these small buyers affects the net

sales of the company

One of the possible ways to increase our sales is toget back these lost buyers

o Research Questions

RESEARCH QUESTIONS

Q1: Is price the only reason for buyers not

procuring copper from us?

Q2: What are the other factors which are

responsible for customer loss?

Q3: Should Sterlite focus on CRM?

RESEARCH HYPOTHESES

Null Hypothesis(H

0)

Price is the mainfactor forcustomer lossand CRM has noeffect.

AlternativeHypothesis (H

A)

Price is not themain factor andCRM is equallyresponsible forcustomer loss

KEYPOINTSIN SALES POLICIES

Total price to be paid in advance

Total price to be paid in advance

Payment options limited

Payment options limited

Material pricing options are fixed

Material pricing options are fixed

Refined copper available in only fixed standard dimensions, and no otherform

Refined copper available in only fixed standard dimensions, and no otherform

Delivery charges are fixed for a region

Delivery charges are fixed for a region

The premium is fixed for all customers, discount depending on DOA, that iscases to case basis

The premium is fixed for all customers, discount depending on DOA, that iscases to case basis

For exemption on import duty, in EOU case, the license and other formshave to be provided in advance, before making the booking

For exemption on import duty, in EOU case, the license and other formshave to be provided in advance, before making the booking


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POSSIBLE FACTORS

Cost of procurement of copper from Sterlite ishigh compared to other supplier1.

Delivery issues2.

Communication problems3.

Conflicts with company policies4.

Terminated that product5.

Switched to copper scrap due to high coppercost6.

CUSTOMER PROFILE

VeryHigh

(>1000MT)

9%

High

(between

1000MTand

500MT)

19%

Moderate

(Between

500MTand

250MT)

5%

Low(


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HYPOTHESIS CONCLUSION

Fail to reject the Null Hypothesis

Price is the primary reason of customer loss.

Communication (CRM), though important, is not theprimary reason of grievance according to any customer

it is only a supporting factor which aggravates customer grievance.

o Answers to Research Questions

ANSWERTORESEARCHQUESTIONS

Q1: Is price the only reason for buyers not procuring copperfrom us?

Ans: Price is not the factor responsible for customer. Lack ofcommunication is a supporting problem which has been ratedas 2nd most responsible issue for customer loss.

Q2: What are the other factors which are responsible forcustomer loss?

Ans: After high cost of procurement, the 2nd most prominentissue is conflict with company policy. CRM is a hidden factorequally responsible.

Q3: Should Sterlite focus on CRM?

Ans: CRM is the supporting reason in almost all the primaryreasons responsible for customer grievance. Communicationissue has 2nd most importance in customer grievance. Thus,Sterlite should focus on improving their CRM and handlingcustomer complaints more efficiently.

RECOMMENDATIONS

Do not offer more discount to small customers to regain them from thetraders

If Sterlite starts offering more discount to small buyers, this news will spread like fire andlarger buyers will demand more discount, affecting Sterlites bottom line.

If possible, reduce discount offered to traders

Traders are able to mint money due to the difference in discount offered to them by Sterliteand the discount they offer to the buyers. If we reduce the discount offered, they will reducethe discount they offer, reducing the difference between Sterlites offered price and tradersprice to the buyer.

Increase customer relationship management in the company

CRM has turned out to be the 2nd most important factor responsible for customer loss. It ishighly likely that if the problems of these customers were handled properly, they wouldhave not searched for alternative source for procuring copper and would still be ourcustomer.

IMPORT COPPER MARKET

After globalization, every domestic industry has a

threat via imports


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CC Rod, 34,710

Cathod, 5,474

Bus Bar, 31,609

Cu wire, 48,286

tubes, 21,547Strip, 13,995

copper scrap,

80,675

OHFC, 21,823Import of Copper


Domestically supply is more than demand, still copper is imported.

Sterlite Industries produces Cathode and CC Rod. Thus, import of these forms of copperpose a competition for Sterlite.

Total amount of CC Rods imported is 34,710MT and of cathode is 5,474MT.

If Sterlite wants to increase it CC Rod sales, it is required to find the factors which incustomers importing copper instead of purchasing from domestic market.

RESEARCH HYPOTHESES

NullHypothesis (H0)

Price is themain factor forprocurementthrough import

AlternativeHypothesis (HA)

Price is not themain factor andcompaniesimport to reducedependency on

domesticmarket


RESEARCH QUESTIONS

Q1. Is procuring copper through imports cheaper

than domestic market?

Q2. Is there some customer need which is notfulfilled by domestic market, but by imports?

Drawbacks

Book copper in advance (up to90days), cannot get deliverywithin a day

The money is blocked forthose days, larger workingcapital

C&F charges has higher asimport duty also becomes afactor

Additional license and tradeformalities needed to importcommodity

Advantages

Many foreign companies havea very less premiumcompared to domestic

market, resulting in cheapercopper.

Copper with certain requiredimpurities can be obtainedfrom foreign market

If the customer can procurecredit from foreign banksthen importing copperprovide natural hedging.

Advantageous for ExportOriented Units, avoids importduty and other trade taxes

IMPORTING COPPER


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POSSIBLE FACTORS

Total cost of procuring copper is less

Copper is procured at a lower premium

Copper is purchased in dollars, providing natural hedging

Credit from foreign banks is used, lower interest rate

Unsatisfied requirements

Required quality of copper is not obtained from domesticmarket

The daily requirement is not fulfilled by domestic market

Do not want to be dependent on domestic market

Collaboration with a foreign refinery

CUSTOMER PROFILE

Almost all sizes of companies import copper

Most of them import small quantities

This shows that import of copper is attractive in some way but is not soattractive to completely depend on imports for annual requirements

VeryHigh

(>1000MT)

31%

High(500

to

1000MT)

33%

Moderate

(250to

500MT)

22%

Low

(1000MT)

5%

High (500

to 1000MT)

24%

Moderate

(250 to

500MT)

38%

Low

(1000MT)

14%High (500

to 1000MT)17%

Moderate

(250 to500MT)

11%

Low

(90days

0%90days>and

>60days

12%60days>and

>30days

29%

30days>and

>7days

38%


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HYPOTHESIS CONCLUSION

Fail to reject the null hypothesis. As per the responses to thequestions by the companies, price plays an important role whendeciding on import.

But the quantity imported will always be less as it involves verylarge working capital. If companies can afford a large workingcapital, they can afford to import large amounts of copper.

This is the main reason why large companies import largeamounts of copper. Small companies cannot afford to block theircash for a long time.


ANSWERTO RESEARCH QUESTIONS

Q1. Is procuring copper through imports cheaper than domestic market?

Ans. Yes, as per the primary data gathered and the understanding of an oligopolistic

market we can confidently say that procuring copper through imports is cheaper

than buying from domestic market.

This is mainly due to the high premium charged by domestic suppliers. But this

lower cost comes at a price of larger working capital. Now, it i s the responsibility

of the management of the company to decide on whether lower procurement cost

is enough to offset the larger working capital.

Q2. Is there some customer need which is not fulfill ed by domestic market, but by

imports?

Ans. As per the primary research the unsatisfied requirement is mainly in pricing

options. Domestic market, Sterlite and Birla Copper, do not allow buying copperon already disclosed LME price, they always book at undisclosed price. Also the

companies who face such issues are EOUs who need to match the pricing options

offered in the countrys market where they export. Also, as discussed in Literature

review, EOUs prefer to import copper as they get rebate on import duty, thus,

lowering the cost of procurement of copper.

RECOMMENDATION

The main area of trouble isthat companies can procurecopper at a lower cost from

international market with the

cost of a larger working capital

Lowering our premium is asolution to reduce imports,but it will reduce profits

The recommendation forSterlite in this scenario is to

continue what is going on and

do nothing at present

Taking any preemptive actionagainst this threat fromimport will not help inincreasing the profits of thecompany OXYGENFREECOPPERMARKET

Explore new avenues in copper market

With development in technology variants of

refined copper are facing increased demand

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VARIANTSOF COPPER

Electrolytic tough pitched Copper (ETP)Electrolytic tough pitched Copper (ETP)

99.99% Cu

150 to 400 ppm oxygen content

High conductivity and ductility

Oxygen content poses problems in extreme conditions

Oxygen free Electrolytic Copper (OFE):Oxygen free Electrolytic Copper (OFE):

99.99% Cu

5 ppm oxygen content

Very high conductivity and ductility

No hydrogen embrittlement and other oxygen based problem

Oxygen Free Copper (OF)Oxygen Free Copper (OF) 99.95% Cu

10 ppm Oxygen content

Very high ductility

No hydrogen embrittlement and other oxygen based problem

o Applications of OFE and OF Copper

APPLICATIONSOF OFEAND OF COPPER

Industrial Applications

Power DistributionSystem

Heavy Gauge PCBs

Wave Guide tubes

Heat sinks forSemiconductor bases

Magnetic windings forparticle accelerator

Transformer coilwindings

Consumer applications

Stereo Systems

High end Speakers

Headphones

A/V Cables

HDMI Cables


Oxygen free copper market is growing

Currently no domestic refinery is producing this variant of

copper and the whole demand is satisfied through imports

If Sterlite enters this market, it will quickly capture overimports

Thus, it is important to understand the market, its size andfuture prospects


RESEARCH QUESTIONS

Q1. What is the size of this market in India, total

oxygen free copper used?

Q2. What is the main sector which employees thisvariant of copper?

Q3. Will it be profitable for Sterlite to enter this

market?

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SIZEOF OXYGENFREE COPPER

9% of import is OFE and OF Copper

It is around 3 to 4% of total copper consumption in India

Total OFE and OF copper imported is about 6.5% ofSterlites production, in 2010

Size is large enough to generate profits

But market is unsteady

Refined

copper

60%OFHC

Copper

9%

Scrap

Copper

31%

Types of Copper Imported

334.174

21.82335

0

50

100

150

200

250

300

350

400

Sterlite

In'000

MT

OxygenFreeCopperDemand

CurrentProduction

3.011%

6.522%7.409%

2.817%3.636%

3.230%3.859%

0.000%

2.000%

4.000%

6.000%

8.000%

200304 200405 200506 200607 200708 200809 200910

%ageofOFEcopperintotalCopperConsumption

GROWTHOFTHIS MARKET

Forecast wrt GDP and Copper consumption show good growth, attractive market

But sudden dip of 2006-07 shows vulnerability

Consumer appliances are the biggest source of vulnerability

OFE copper is not needed in those products, but are selling on sentimental value

31804.59

0

5000

10000

15000

20000

25000

30000

35000

GrowthofImportofOxygenFreeCopper

OFECopperinMT GDPRs.100Million

43349.80316

0

10000

20000

30000

40000

50000

GrowthofImportofOxygenFreeCopper

OFECopperinMT CopperConsumptionin20MTs


ANSWERTO RESEARCH QUESTIONS

Q1. What is the size of this market in India, total oxygen freecopper used?

Ans. In 2010, the total consumption of Oxygen free copperwas 21823.35MT, approximately 3.9% of the whole copperindustry and 6.5% of Sterlites production in that year.The market is large enough to generate sufficient profits.

Q2. What is the main sector which employees this variant ofcopper?

Ans. The main sector which consumes this variant of copperis entertainment. The audio Video industry appliancesare the ones having maximum demand for oxygen freecopper wires. This is that sector which can do equally wellwith ETP copper wires.

Q3. Will it be profitable for Sterlite to enter this market?

Ans. The market is attractive and appears profitable to enter.But we should consider different scenarios beforecommenting on profitability for Sterlite to enter thismarket.

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RECOMMENDATIONS

NOT Manufacture own OFE &OF Copper

Needs different method ofrefining

New plant for it, costly

No other domestic supplier

Capture full market, largesales

But market is unstable, risky

Thus, not recommended Initial investment is high

and risk of return is alsohigh

If market fails, like 2006-07,heavy losses

Switch domestic use customersfrom OFE copper to ETP

Copper

Advertise properties of ETPcopper comparing it with OFECopper

It is important for customersto understand that there is noadvantage in using OFE cable

Customers will themselvesswitch to ETP Copperincreasing copper consumption increasing Sterlites sale

Thus, recommended

Better if one of the high endmusic cable manufactureradvertises

STUDYON EXISTING CUSTOMERS

OFSTERLITEOne of the best methods for growth is Organic

growth

If its customers are growing, Sterlite will also

grow

COPPER CONSUMPTIONIN INDIA

We see that copper consumption has beengrowing a lot in India, specially after 1991

Copper consumption per capita is also aparameter to measure economic growth ofa country


To be able to forecast its growth accurately we need tounderstand the parameters on which this companydepends to growth, and the factors influencing the

growth.

For this we study the growth of Sterlites majorcustomers


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RESEARCH QUESTIONS

Q1. What is the growth of the copper industry in

India?

Q2. What is the growth of the different markets

involved in copper industry?

Q3. How much will the growth in copper industry

and the markets involved affect the growth ofSterlite Industries?

MARKETSINVOLVEDIN COPPER INDUSTRY

COMPANIESCONTACTED

Apart from 2 transformer companies, other have an average growth of around 10% p.a.

IMP Power has a higher rate as it is a new company and growing fast

CGL is the market leader with maximum share

13%

-100

10

20

30

AxisTitle

Growth %

GROWTHIN MARKET

From the research we get growth in transformer Industry to be 11% andwire industry to be 15%

Main factors for growth are 12th 5 year plan and expected increase in GDP

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FORECASTED COPPER CONSUMPTION

Consumption of copper in India will increase by around 10% as per secondary resources and byaround 13% by our primary resources.

Thus, Sterlite industries can grow organically at a good pace if it continues to sell to its existingclients.

0

200

400

600

800

1000

1200

2009 2010 2011 2012 2013 2014 2015

in'000MT

Forecasted Copper Consumption

Forecasted with GDP Forecasted @10% growth Forecasted @13% growth


ANSWERSTO RESEARCH QUESTIONS

Q1. What is the growth of the copper industry in India?

Ans. From the secondary research we get the growth rate of copper industry as 10%, but

from primary research we get the growth rate of industry as 13%. But the

companies shortlisted by us might not be a good representative of the whole copper

industry and this might be the reason of getting such high growth rates.

Q2. What is the growth of the different markets involved in copper industry?

Ans. There are many markets involved in copper industry. In this research we studied

the two main markets, transformers and wires. We developed a growth structure for

these markets and calculated their respective growth rates. Transformer market is

expected to growth at a rate of 11% per annum, whereas wire industry is expected

to grow at a rate of 15% per annum.

Q3. How much will the growth in copper industry and the markets involved affect the

growth of Sterlite Industries?

Ans. With the forecast of growth in markets involved and that in copper industry,

Sterlite Industrys sales are also expected to grow at a similar rate. Considering

that these companies do not change the share of material procured by us, the

growth in sales of Sterlite Industries will also be high. Growth in sales of Sterlite

Industries is expected to be around 13% considering the growth in wire industry

and transformer market.

THANK YOU

Documents

Saurabh Rustagi 10P049 Vedanta Present a Ion